nep-knm New Economics Papers
on Knowledge Management and Knowledge Economy
Issue of 2006‒10‒28
six papers chosen by
Emanuele Canegrati
London School of Economics and Political Science

  1. Myths of the Psychometric Paradigm and how they can misinform risk communication By Sjöberg, Lennart
  2. The 'Names Game': Harnessing Inventors Patent Data for Economic Research By Melamed, Ran; Shiff, Gil; Trajtenberg, Manuel
  3. Coordination and Lock-In: Competition with Switching Costs and Network Effects By Farrell, Joseph; Klemperer, Paul
  4. A psychological game with interdependent preference types By J. Atsu Amegashie
  5. Last Minute Feedback By Klein, Tobias; Lambertz, Christian; Spagnolo, Giancarlo; Stahl, Konrad O.
  6. Are Elite Universities Losing their Competitive Edge? By Han Kim, E; Morse, Adair; Zingales, Luigi

  1. By: Sjöberg, Lennart (Center for Risk Research)
    Abstract: Extensive research on risk perception has led to a received view (the psychometric model or paradigm), which stresses that members of the public react negatively to technology whenever it (a) is new, (b) causes “dread”, and (c) there is low trust in experts and organizations concerned with managing the risk. Experts, on the other hand, are said to be “objective” and unaffected by “subjective” factors. However, this research has used the same - misleading - methodology in almost all cases and the fact that some of the results have been “many times replicated” is therefore irrelevant to its validity. Analyses of the psychometric model have repeatedly shown that it leaves most of the variance of perceived risk and policy attitudes unexplained. A closer look at several decades' work shows that (a) novelty carries little weight in risk perception, (b) “dread” has not been measured in an appropriate manner and is little powerful, and (c) social trust has a marginal influence as compared to trust in science, epistemological trust. Furthermore, antagonistic attitudes are common and important. Experts exhibit the same structure and level of risk perception as the public; unless they assess risks, they are responsible for managing. In that case, they judge the risk to be drastically smaller than the public does. The importance of epistemic as opposed to social trust stresses the need to take peoples’ concern seriously, not only establish good social relations. The finding that antagonistic attitudes are common and important suggests that being “respectful of people’s feelings” will not be sufficient to establish trust. Failures of risk communication can probably be explained to some extent by the fact that practitioners rely on the misleading notions of the psychometric paradigm.
    Keywords: risk perception; risk communication; psychometric paradigm
    Date: 2006–10–15
  2. By: Melamed, Ran; Shiff, Gil; Trajtenberg, Manuel
    Abstract: The goal of this paper is to lay out a methodology and corresponding computer algorithms, that allow us to extract the detailed data on inventors contained in patents, and harness it for economic research. Patent data has long been used in empirical research in economics, and yet the information on the identity (i.e. the names and location) of the patents’ inventors has seldom been deployed in a large scale, primarily because of the “who is who” problem: the name of a given inventor may be spelled differently across her/his patents, and the exact same name may correspond to different inventors (i.e. the “John Smith” problem). Given that there are over 2 million patents with 2 inventors per patent on average, the “who is who” problem applies to over 4 million “records”, which is obviously too large to tackle manually. We have thus developed an elaborate methodology and computerized procedure to address this problem in a comprehensive way. The end result is a list of 1.6 million unique inventors from all over the world, with detailed data on their patenting histories, their employers, co-inventors, etc. Forty percent of them have more than one patent, and 70,000 have more than 10 patents. We can trace those multiple inventors across time and space, and thus study the causes and consequences of their mobility across countries, regions, and employers. Given the increasing availability of large computerized data sets on individuals, there may be plenty of opportunities to deploy this methodology to other areas of economic research as well.
    Keywords: computer software; inventors; mobility; patents
    JEL: C81 C88 O30
    Date: 2006–09
  3. By: Farrell, Joseph; Klemperer, Paul
    Abstract: Switching costs and network effects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in efficiency, and gives vendors lucrative ex post market power - over the same buyer in the case of switching costs (or brand loyalty), or over others with network effects. Firms compete ex ante for this ex post power, using penetration pricing, introductory offers, and price wars. Such 'competition for the market' or 'life-cycle competition' can adequately replace ordinary compatible competition, and can even be fiercer than compatible competition by weakening differentiation. More often, however, incompatible competition not only involves direct efficiency losses but also softens competition and magnifies incumbency advantages. With network effects, established firms have little incentive to offer better deals when buyers’ and complementors’ expectations hinge on non-efficiency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive offers and random events, it later 'tips' to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another’s existing customers, and so also discourage more aggressive entry. Because of these competitive effects, even inefficient incompatible competition is often more profitable than compatible competition, especially for dominant firms with installed-base or expectational advantages. Thus firms probably seek incompatibility too often. We therefore favour thoughtfully pro-compatibility public policy.
    Keywords: coordination; indirect network effects; lock-in; network effects; network externalities; switching costs
    JEL: D42 D43 L12 L13 L14 L15
    Date: 2006–08
  4. By: J. Atsu Amegashie
    Date: 2006–10–20
  5. By: Klein, Tobias; Lambertz, Christian; Spagnolo, Giancarlo; Stahl, Konrad O.
    Abstract: Feedback mechanisms that allow partners to rate each other after a transaction are considered crucial for the success of anonymous internet trading platforms. We document an asymmetry in the feedback behaviour on eBay, propose an explanation based on the micro structure of the feedback mechanism and the time when feedbacks are given, and support this explanation by findings from a large data set. Our analysis implies that the informational content of feedback records is likely to below. The reason for this is that agents appear to leave feedbacks strategically. Negative feedbacks are given late, in the "last minute", or not given at all, because of the fear of retaliative negative feedback. Conversely, positive feedbacks are given early in order to encourage reciprocation. Towards refining our insights into the observed pattern, we look separately at buyers and sellers, and relate the magnitude of the effects to the trading partners' experience.
    Keywords: eBay; fear of retaliation; informational content; reciprocity; reputation mechanism; strategic feedback behaviour
    JEL: D44 L15 L86
    Date: 2006–06
  6. By: Han Kim, E; Morse, Adair; Zingales, Luigi
    Abstract: We study the location-specific component in research productivity of economics and finance faculty who have ever been affiliated with the top 25 universities in the last three decades. We find that there was a positive effect of being affiliated with an elite university in the 1970s; this effect weakened in the 1980s and disappeared in the 1990s. We decompose this university fixed effect and find that its decline is due to the reduced importance of physical access to productive research colleagues. We also find that salaries increased the most where the estimated externality dropped the most, consistent with the hypothesis that the de-localization of this externality makes it more difficult for universities to appropriate any rent. Our results shed some light on the potential effects of the internet revolution on knowledge-based industries.
    Keywords: faculty productivity; firm boundaries; knowledge-based industries; theory of the firm
    JEL: D85 I23 J24 J31 J62 L23 L31 O33
    Date: 2006–05

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